A review of the impact of bilateral agreements on Zimbabwe

Volume 4, Number 2

A review of the impact of bilateral agreements on Zimbabwe

Mugano, G.

The study provides a quantitative assessment of the potential revenue, welfare and trade implications of the bilateral FTAs (free trade agreements) on Zimbabwe using the partial equilibrium model. The findings of the study reveal that the BFTAs (bilateral free trade agreements) will be beneficial to the country in terms of an increase in exports of US$122.433 million and gains in consumer welfare to the tune of US$16.689 million. However, the country expects a loss of revenue amounting to US$89 million and an increase in imports as a result of trade creation effects by US$104.573 million. The combined forces of trade creation and revenue loss pose a serious threat to Zimbabwe‘s economy which is still fragile. The immediate possible impacts are de-industrialisation and reduction in fiscal space. The implementation of a BFTA needs to be accompanied by steps to improve revenue collection from other sources, such as excise duties, VAT and income tax, and by expanding the tax income base by taxing the informal sector. A financial adjustment facility is necessary to mitigate the industries affected by trade creation.